Ahead of its time

National Bank of Kuwait continues to enhance its electronic services. A customer-centric, multi-channel approach has helped the bank retain fickle customers and acquire new ones, according to Simon Clements, its e-business chief

NBK's online banking strategy|~||~||~|Let’s be realistic: whether you work in it, invest in it, or simply write about it, the Internet isn’t nearly as fun as it was a year ago. Online banking is not about fun and it’s certainly not entertainment that customers are looking for when they bank. Rather, it’s about providing a way to please your customer through providing convenience and value added services. If you consider theme-based restaurants like Planet Hollywood and the Hard Rock Café, the deteriorating quality of food was a main cause of a waning constituency base. Banking is very much the same: the fundamental factor is to know your customers and satisfy their needs.

The National Bank of Kuwait (NBK) has been a pioneer in offering online financial services. As the first bank to launch online banking services in the Middle East three years ago, it has become a successful case study for other entities that want to venture down the same road. However, the experience has been and remains challenging given the low PC penetration rate in the region.

Simon Clements, general manager of e-business at NBK, explained that the approach from the beginning was, “that technology would provide a significant benefit to our customers. We wanted to get to market first to become acquainted with using it and provide the services across the Internet. We wanted to position ourselves to take advantage of the developments in technology over time.”

The bank implemented several measures to address the low number of PC users. NBK teamed up with Qualitynet, the largest Internet Service Provider (ISP) in Kuwait, to provide various offerings and cheaper subscription rates to customers who join the bank. Subsequently, an Internet shopping card was launched in an effort to entice people to go online, overcome the concerns of security and encourage customers to transact with the bank or purchase online. According to Clements, the bank is currently working on different kinds of bundling packages for the future. ||**||E-brokerage|~||~||~|Since NBK set out on virgin territory in 1998, the financial services industry now appears to be evolving with the market receptive and the outlook positive. 19 regional banks offer online banking today, Mashreq Bank being the most recent. According to Joseph Braude, a Pyramid Research Middle East/North Africa analyst, “Demand for click-and-mortar e-banking will increase rapidly as Internet penetration in the region grows. Currently, 14% of Internet users in Arab countries where e-banking is an option are registered to bank online. The equivalent number in the US today is 17%, a figure matched or exceeded by three Arab countries.”

Hence, it should come as no surprise that NBK’s strategy has been to integrate its online offering into its offline capabilities. To date, it has proven to be a success with ‘Watani Online’, its online banking service. The service offers complete functionality, allowing subscribers to access their accounts and credit cards; perform account-to-account transfers and third-party transfers; and carry out bill and card payments.

Watani Online has been a hit for NBK. The bank, to date, has 30,000 registered customers representing 10% of its customer base and 1,800 new customers register each month for the service. Although Clements declined to quantify the amount of revenue generated or cost reductions from online transactions, he did, however, disclose that 100,000 transactions are conducted online per month, which represents 5-6% of the bank’s total transaction mix.

Online transaction initiation has not increased revenues for NBK. It may come as a surprise, but according to Clements, the bank did not look at the Internet as an additional source to generate revenue. While it is definitely a cheaper delivery channel and the cost per transaction is cheaper than other outlets, Clements paints an interesting picture. “As with ATMs, what can happen is that because it is so convenient, people use it more and more,” says Clements.

Therefore, although the unit cost is less the total cost per customer can actually go up. “NBK views the Internet as just one part of a fully integrated channel strategy and you cannot look at the Internet in isolation. We are customer centric and we invite our customers to touch the bank through the delivery channel that suits them. Most customers are multi channel users and demand this array of choice,” he says.||**||Mobile payment and WAP|~||~||~|On the retail banking side, NBK intends on rolling out the ability to apply for consumer loans online. However, customers will not be able to complete the entire transaction online. Customers will be able to complete the necessary paperwork online, but will be required to come into the branch to finalise the transaction. The bank has also had a PC-based corporate banking service for the past 5 years and will be shortly migrating it to the internet. Account enquiry access is also extended for correspondent banking.

In October 2000, NBK introduced online brokerage. The new facility is predominantly cash against equity. It allows customers to trade stocks on US stock exchanges. While trades are priced at $24.95, which is more expensive than discount brokers like E-Trade, Charles Schwab and even some of the local players in the region, NBK customers are offered a supplement of services. Customers are not able to place ‘buy’ orders on margin, open option accounts or invest in mutual funds (the bank offers it own array of funds locally) yet, but NBK provides Arabic and English support throughout the New York trading day.

Moreover, Clements explains, “We have integrated online banking with online brokerage. This means that in a situation where customers see the market moving, they are able to transfer money to their trading account within minutes. Whereas, if you are with E-trade for instance, it would probably take you a couple of days.” NBK is also collaborating with US-based Pershing to deliver stock tickers to mobile phones.||**||Expansion|~||~||~|Since it began marketing the online brokerage service, NBK has attracted 1,200 customers, of which 500 are active users and 100 new customers register each month. While to some, the number of customers that uses the service may appear low, “it is the frequency of trading that determines profitability, not the quantity of customers, that determines success for any online brokerage business. You cannot measure any online brokerage initiative by merely counting the number of customers,” says Clements.

What is even more interesting is that the bank claims it has attracted new customers from E-Trade and Charles Schwab. Clements attributes this to, “the fact that the bank has leveraged its trusted third party status, and has a physical presence, allowing customers to touch and feel us and be a bit more secure.” NBK will shortly expand its offering by introducing broker assisted trades. Customers will be able to execute trades over the hone instead of trading on the Internet. The bank will not offer clients any advice and the service will be more expensive than the online trading option.

The introduction of electronic trading by NBK seems to have attracted the attention of regional and foreign players in the investment arena. Although the industry is at a nascent stage, the investment environment does appear to be shaping up to that of the US. Currently, CSFBdirect-eUnion, Islamiq.com, iHilal.com and DUBEX offer online trading. The Jordan-based Middle East North Africa Financial Network (Menafn.com) will also shortly launch its service as well. Although not confirmed, those in the industry estimate that E-Trade has 10,000-15,000 online accounts in the region, Datek 8,000-10,000 and CSFBdirect-eUnion around 3,000.

In March 2001, NBK launched Internet banking from mobile devices, offering its online banking services to customers with WAP-enabled mobile phones. Clements agrees that the large number of mobile phone subscribers compared to Internet users was a key factor in launching the service. Kuwait has an estimated 600,000 mobile users and approximately 120,000 Internet subscribers, according to Joseph Braude of Pyramid Research. The new service has attracted customers who have never accessed the service via PC but are doing so with their mobile phone, according to Clements. NBK currently has 800 active users for the new service and aims to position mobile banking as a premium service over time.

The initiative has been challenging for a number of reasons. “In Kuwait there is no real awareness of WAP or wireless financial services, which we really did not expect. Mobiles are used for voice and SMS messaging; there are few WAP-based services available today. Even though the uptake of WAP phones has been strong, this is probably due to consumer habits in the country in terms of changing mobile phones. Customers in the US change phones every 3 years, in Europe every 2 and in Kuwait every 6 months,” says Clements.||**|||~||~||~| Those who want to undertake wireless delivery of financial services, before a large-scale migration of customers takes place, must address a number of issues. “NBK spent 2 years with English online banking before it unrolled the Arabic service just 6 months ago. We have more Arabic users for WAP than we do for English,” Clements explains. To overcome some of the new challenges associated with wireless delivery of financial services, NBK plans to shortly launch an awareness campaign on WAP services.

Unlike some entities in the financial services industry, Clements says return on investment (ROI) is not a formal measurement of the bank’s success. “We are a successful online bank, especially if you measure our success in terms of the number of customers we have and what we provide our customers,” says Clements. “We have not made money out of Internet banking; we do not look at it like that. It is part of an overall offering. It is about personalisation,” added Clements.

NBK recently announced plans to expand its operations in the region with Egypt being its first target. We turned to the bank’s chief executive, Ibrahim Dabdoub, for some insights on this initiative. “We are expanding our activities geographically with the objective of creating a first class regional bank,” he says. “The leading rating agencies recognise our position as the premier Arab bank by awarding us with the highest ratings. Egypt has been the focus of the bank’s initial expansion plans. With a population of 66 million, of which only 10% have bank accounts, the market remains primitive and the potential is huge. We feel whilst Egypt offers significant potential, other markets are attractive in the longer term such as Syria and Iran. We are already well positioned in Lebanon.”

Will the Internet based services referred to above have a role to play in this regional expansion? “We have developed a very strong consumer banking franchise in Kuwait based on the delivery of innovative and convenient services that are delivered across a set of integrated channels,” explains Dabdoub.

“It is this recognition that each channel has a key role to play within an overall strategy that has been a key element in our success. So yes, the Internet based services we provide today will be an important element of our offering in regional markets just as it is in our home market today.” ||**||